KBB Unveils 2012 Best Resale Value Awards

Along with explaining its analysis in proper context of the current wholesale landscape, Kelley Blue Book has revealed its annual Best Resale Value Awards.

In an exclusive with Auto Remarketing, KBB director of residual consulting Eric Ibara declared that this year’s best resale brand award went to Toyota for the second time, giving the Japanese OEM the same honor it claimed back in 2010.

The top luxury brand honor was awarded to Lexus, marking the second time that nameplate has taken the top spot in KBB’s residual analysis.

Kelley Blue Book’s Best Resale Value Awards are based on projections from the Kelley Blue Book Official Residual Value Guide determined by a staff of analysts. These awards honor vehicles expected to maintain the greatest proportion of their original list price after five years of ownership.

Ibara pointed out low-volume vehicles and models with a manufacturer’s suggested retail price of more than $60,000 are excluded from award consideration, except in the luxury and high-performance categories.

“I think you’ll find the brands that win are always at the top. We really don’t see much movement amongst the brands very much,” Ibara told Auto Remarketing. “Certainly for Toyota and Lexus, they have been among the top brands very consistently over the past three years, if not longer.

“This year, Toyota had a number of products that stood out,” he continued. “Certainly, their trucks continue to do very well. The Tacoma has been a perennial winner in its segment. Another development for Toyota is they redesigned the Camry and redesigns typically help models to improve on their residual values. It doesn’t happen all the time, but many times redesigns result in improvement and certainly did so for the Camry.”

Auto Remarketing asked Ibara if the top resale honors should be considered the climax to the triumphant return for the Japanese nameplates that have overcome the turmoil of recalls and this year’s natural disasters.

“I’m sure they would like to see it that way,” Ibara began. “Two years ago when they had their problems with the recalls, we knew that their used-car values were going to drop and we did see that. My responsibility is to forecast residual values, so we’re typically looking at a time horizon that’s two, three and five years into the future.

"At that time, we were not forecasting that Toyota was going to have a permanent hit. We never dropped our residual values based on their recall worries. We said at the time that the long-term danger to Toyota would be not from the recall but (could occur) if they sustained their aggressive incentives that they implemented right after the recalls. If that was kept on for a long-term basis then that would be the reason we would drop residual values," he continued.

“The tsunami that hit them this year in a way helped used-car values, because it created a shortage,” Ibara went on to say. “From that standpoint, it was bad for Toyota and their stock price, but we didn’t think it was going to be bad from a residual value perspective.”

After listing all of the winners, Ibara told Auto Remarketing that he believes dealers won’t be surprised by which vehicles were included.

“My experience is dealers are very savvy people,” Ibara stressed. “My perception is that they should read the list of winners we publish and they’ll not be surprised. They see it every day by the customers that walk onto their lots or if they’re fortunate enough to be selling one of the brands that has a winner on our list, they know where the consumer demand is.

“Really, it’s the consumer demand that’s driving the residual values. At least that’s one half of the equation,” he added.

Any deviation might come from where a dealer operates a rooftop.

“The only comment I would make contrary to that statement is depending on where they’re located, they may see some regional differences,” Ibara explained. “One model that comes to mind is the Volt, launched primarily in the Southern states. If you live North Dakota, it might still be difficult to find a Volt in a showroom.

“Some of the trucks may be more popular in rural states but not so much in urban areas. We recognize there may be some differences in demand depending on regional location,” Ibara went on to say.

While the company’s Residual Value Guide has been published since 1982, Kelley Blue Book established its annual Best Resale Value Awards in 2003.

KBB reports projections based on current vehicle data, sales data, market conditions for each vehicle, competition within vehicle segments, expectations of the future economy and the combined experience of Kelley Blue Book’s residual analysts.

Residual values reflect projected future auction values for vehicles in average condition with 75,000 miles at the end of a five-year lease or ownership period.

“Overall, you’re seeing improvements in the models,” Ibara said. “Clearly, the vehicles that are on the road today are better equipped, have better quality and to a certain extent have more styling that’s more in tune with the general public. Not too long ago, equipment we would have considered to be found mainly in the luxury brands are now standard equipment pretty much across the board. From that standpoint, people are getting better-equipped vehicles.

“To a large extent, manufacturers have managed to do this and not raise prices to the point where it’s unaffordable to the general public,” he continued.

“This is one of our favorite times of the year; when we get to focus on the vehicles that are doing well and really debate the merits of all of the great vehicles that are on the market today,” Ibara went on to say. “I think what strikes us is how competitive the market has become. When you look at the winners and especially when we debate where the vehicles are landing on our list, we’re just struck with how they’ve all improved in styling, performance or quality measure.

“Consumers really have a range of choices today rather than just one or two models (like) in the past,” Ibara added. “Some of the segments, you could probably list five models that are competitive and are all doing well in the marketplace. That just strikes us as being a sign that many manufacturers are in the game now with great products to offer.”

Keeping Wholesale and Residual Discussions Separate

While dealers have seen wholesale prices climb because of diminishing auction volume, among other factors, Ibarra cautioned managers to maintain a difference between KBB’s residual and wholesale analyses, despite the current unprecedented marketplace.

“There is a temptation to look at the auction values today and conclude that these will be the same values that will exist three years from now,” Ibara emphasized. “First of all, the economic conditions that exist today will hopefully be improved on three years down the road. There’s no guarantee that will be true, but certainly we hope unemployment will be lower. We hope the economy in general will be stronger.

“Probably the biggest economic factor that we’ve been dealing with lately is the volatility in fuel prices,” he continued. “From that standpoint, we are looking at a forecast that is not calling for significantly higher fuel prices five years into the future. I think the forecast calls for a fairly stable range of fuel prices over the next five years. That is driving our forecast, especially at the segment level.”

OEM Reactions to Awards

Several of the automakers who received honors from KBB shared their reaction to the news.

“Winning the top brand in the Kelley Blue Book Best Resale Value Awards is a very significant honor as it reflects Toyota’s commitment to quality, dependability and reliability, which ultimately adds up to great value,” stated Bob Carter, group vice president and general manager of Toyota.

“Toyota will continue to deliver the finest cars and trucks consumers have come to expect for over half a century," Carter continued.

Meanwhile, Mark Templin, Lexus group vice president and general manager, chimed in with, “We are proud that Lexus has won the highly respected Kelley Blue Book’s 2012 Best Resale Value Award in the luxury brand category.

“Lexus customers appreciate the importance of resale value as part of the overall ownership experience, and that’s something we strive to deliver better than anyone else,” Templin noted.

And one of the domestic OEMs honor also added its comments.

“In the last 18 months, we have completely updated the entire Jeep vehicle lineup, highlighted by the introduction of an all-new Grand Cherokee, as well as a new, more fuel-efficient and powerful Jeep Wrangler” explained Mike Manley, resident and chief executive officer of Jeep.

“The result has been increased showroom traffic, a 44-percent improvement in sales so far this year, and increased residual values for our vehicles. We are delighted that Kelley Blue Book has recognized the Jeep brand’s improvements, and particularly these two awards for the Wrangler,” Manley went on to say.

Consumers More Aware of Residual Values

KBB believes more consumers are gaining a better understanding of what residual value means and how it can alter what vehicle they eventually buy.

Analysts emphasized that shoppers should take several factors into consideration when buying a vehicle to ensure as much future value as possible. They believe just because a unit is expensive or from a luxury brand does not necessarily mean it will hold its value better than an inexpensive model down the road.

For example, a $60,000 vehicle has to be worth $21,000 five years later to have a residual value of 35 percent. Meanwhile, an $18,000 vehicle only needs to be worth $6,300 five years later to have the same 35 percent residual value.

“We think consumers are better informed these days,” Ibara explained. “One of the things we’ve done on our website is implemented a redesign for viewing total cost of ownership. We find that consumers are very interested and consumers do research total cost of ownership by model before they purchase. It doesn’t do the consumer any good if they can save $500 on the purchase price but lose $3,000 over the course of owning the vehicle because of ownership costs."

“Vehicle depreciation is a new-car buyer’s biggest expense, yet many shoppers don’t realize that resale value information is available for free on Kelley Blue Book’s kbb.com,” Nerad went on to say. “Taking the time to research and choose vehicle makes, models and options wisely now can help new-car shoppers get as much money as possible when they sell or trade-in the vehicle in the future.”